European plans to scrap mobile roaming charges leave telecoms companies facing the prospect of wafer-thin profit margins and pave the way for mergers in the sector, analysts warned on Thursday.
The European Commission plans to ban all incoming call charges while travelling in another EU country from 1 July 2014. Charges for calls between mobiles in the EU will be capped at not be more than 0.19 euros per minute and the cost of cross-border phone calls in Europe will be capped at the price of a long-distance domestic call .
The proposals must be approved by the 28 EU member states and the European parliament before they can be come into force. International mobile calls currently vary from 35 cents to 1.19 euros per minute in the EU.
The European Commission's telecoms chief Neelie Kroes conceded that there would be winners and losers from the deal but said any loss of revenue for telcos would be compensated by access to new markets. Furthermore, the proposals were necessary to protect Europe's telecoms industry and economy.
"We do have a situation in Europe where we are not any longer in the driving seat [economically]" told CNBC's "Worldwide Exchange" on Thursday. "We have to make steps forward and this is a main step forward. If we stick to the situation that we have today we are losing the game and losing the game not only means an attack on the telco industry but it means an attack on the European economy."
Michael Hewson, senior markets analyst at CMC Markets the proposals were very good news for consumers .
"But for the telecoms companies their profits are going to be squeezed even more. Margins are going to be wafer-thin for telecoms companies in Europe- there is already too many companies operating in Europe for the size of the market and with these new rules, the capacity for European companies to make a profit will be greatly reduced," Michael Hewson told CNBC.
The Commission's proposals also include plans to make it easier to switch provider and prevent operators from blocking certain internet services.
Under the plan, companies would either have to let customers use "roam like at home" plans in EU countries or offer a choice of roaming providers with cheap rates.
As a salve to telecoms operators whose revenues will be affected by the new rules, the Commission said its proposals cut red tape, enabled more cross-border investment and reduced divergences between regulators. Predictably, telecoms companies have strongly criticized the plans nonetheless.
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The Commission has said the plan would introduce simple rules to help companies invest more and expand across borders. CMC Market's Hewson was not so confident, however, predicting that more and more companies would be forced to rationalize or merge.
"We will definitely see some mergers because of this, particularly of weaker, smaller rival companies. We could also see some overseas operators trying to enter the European market."
Consumers should also be aware of an important detail as well, he said: The roaming charge proposal would only apply to phone calls and not data, which is often the most costly roaming service. "It's a bit of detail but it's an important one because that's where you get stung when you're abroad and using your mobile phone," he remarked.
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James Robinson, an analyst for policy and regulation at technology research firm Ovum, said more consolidation will "definitely happen" if the proposals were implemented.
"I we look at China or the U.S., those markets are dominated by three or four operators; in Europe, we have hundreds of operators so the Commission trying to achieve a more single market makes sense," Robinson told CNBC on Thursday. "I think there are larger operators that would like to see more consolidation- it's necessary if they're to achieve economies of scale and to be able to invest in more network infrastructure."
Robinson said there was a good chance the proposals could evolve as the telecoms industry started lobbying for changes- though the ban on roaming charges was something that he believed would stand the test of time.
- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt